Renewable Fuels Standard (RFS) effectiveness has been undermined by recent EPA granted waivers of the ethanol blending mandate by the oil refiners. The impact on corn prices and corn growers is significant. Based on several estimates these actions by the EPA could have caused corn prices to be lower by $0.08 to $0.40 per bushel. Additional waivers could be granted thus causing further price declines.
James Osborne of the Houston Chronicle has analyzed the situation in a piece titled, “With Flood of EPA Waivers, Refineries Find Way Around Ethanol Mandate”. In the article Osborne notes how a waiver loophole to alleviate financial hardships for small refiners is being used as a workaround the spirit of the RFS mandate.
Under a little-used federal law designed to prevent small refineries from closing due to financial hardship, the EPA has handed out exemption after exemption to refineries in Texas and across the country, relieving them of compliance with an ethanol mandate that the oil industry has fought to repeal for years, but President Donald Trump swore to protect in reaching out to Midwestern voters on the campaign trail.
So far the EPA has exempted roughly 20 refineries from their 2016 biofuels requirements and at least 25 for 2017, with many more under consideration, according to the EPA.
Exactly how much impact the exemptions will have on the nation’s ethanol market remains unclear. But one ethanol lobbyist estimated it could work out more than 1 billion gallons in lost demand – about 7 percent of the 2017 ethanol requirement. Already, the exemptions are roiling the market for the renewable fuel credits, known as RINs, that refiners must buy if they don’t blend ethanol themselves.
In a 2013 study titled “Impacts of Ethanol Policy on Corn Prices“, its authors noted that one billion of ethanol expansion resulted in a corn price increase of 2% to 10%. At today’s prices, that results in a $0.08 to $0.40 impact on the price of corn.
“Anyone with a brain submitted an application,” the executive said. “The EPA was handing out those exemptions like trick or treat candy.”
Midwestern politicians, who for years have fought to protect the ethanol sector vital to the corn farmers in their states, expressed outrage this week that large and profitable companies are receiving exemptions under a provision they argue was designed to stop small refineries from going bankrupt.
“If refineries are being allowed to retroactively get out of the renewable volume obligations the EPA assigned them in November, that fundamentally undermines the Renewable Fuel Standard,” Sen. Chuck Grassley. R-Iowa, said in a statement. “There are legitimate questions being raised about whether EPA is following the law with these exemptions.”
These waivers were reportedly granted to three large oil refineries owned by Andeavor. This triggered the President of the National Corn Growers Association (NCGA) Kevin Skunes’ reaction in this statement.
“EPA’s reported actions are unacceptable,” Skunes said. “EPA cannot undermine the RFS by granting waivers to refiners who are making profits as large as the one reported by Reuters. Granting these waivers significantly reduces the number of gallons of fuel blended with ethanol hurting rural economies and the nation’s corn farmers. When refiners aren’t meeting their blending obligations, corn farmers pay the price.
“EPA’s small refiner exemption process has no transparency,” Skunes said. “We need the EPA to live up to Administrator Pruitt’s October commitment to senators to, ‘act consistent with the text and spirit of the RFS,’ and to do so in an ‘open and transparent manner that advances the full potential of this program.’ We call on the EPA to stop granting these waivers to refiners who make billions of dollars and do not face a true hardship.”
The Renewable Fuels Association (RFA) and National Farmers Union (NFU) were also upset with these developments as reported by Julie Harker of Brownfield Ag News.
RFA CEO Bob Dinneen says media reports this week saying the EPA granted RFS waivers to three large oil refineries owned by Andeavor confirms RFA’s worst fears.
The National Farmers Union says EPA’s granting of a hardship waiver to the Andeavor is wrong. In a letter to EPA Administrator Scott Pruitt, NFU President Roger Johnson insists the EPA either stop granting the waivers or raise volume obligations to make up for them. The RFS waivers are meant for small refineries to avoid financial hardship.
Ben Potter of Farm Futures also covered the EPA’s granting waivers around the RFS mandate. Potter specifically highlighted, that double the normal amount of ‘hardship’ waivers were given to oil refiners in recent years.
Fresh concerns over recent EPA actions hit the agriculture industry this week after learning the agency has exempted 25 so-called “hardship exemptions” to oil refineries freeing them from some mandates imposed by the U.S. Renewable Fuel Standard. That’s roughly double the amount it has handed out in recent years.
What’s more, the waivers are typically awarded to smaller refineries (production of 75,000 or fewer barrels per day), but among the latest recipients was Andeavor, which cleared $1.5 billion in net profits last year.
That news sent RIN biofuel credit prices tumbling as low as 30 cents Wednesday, the lowest they’ve traded since February 2017.
“EPA appears to be operating under the cover of night in a secretive process where the agency acts as judge, jury, and executioner to effectively reduce the overall demand for biofuels in this country absent any public discourse,” said Growth Energy CEO Emily Skor.
All of the EPA revelations provide the background to a fresh round of White House meetings on the RFS topic. Past meetings resulted in a stalemate in renewable fuels standard discussions. A Reuters’ story carried by Successful Farming has outlined the meeting agenda and participants.
NEW YORK, April 6 (Reuters) – U.S. President Donald Trump will review a list of potential changes to the nation’s renewable fuel laws at a meeting with members of his cabinet on Monday, two sources said, as biofuels groups warned against any action that would weaken ethanol demand.
But Trump’s efforts to reform the law have been met by fierce opposition from corn farmers and ethanol producers who are quick to remind the president that he also vowed to preserve the RFS during corn-belt campaign stops.
Monday’s meeting will include Environmental Protection Agency chief Scott Pruitt and Agricultural Secretary Sonny Perdue. Pruitt heads into the meeting under pressure from lawmakers to resign over allegations he broke ethics rules by renting a room in a Washington condo owned by the wife of an energy industry lobbyist.
Its not clear if Monday’s meeting will conclude a months long debate about what if anything should be done to RFS policy. A number of policy alternatives to RIN cap have been volleyed back and forth to address RFS policy concerns. The EPA’s utilization of the ethanol mandate waiver has already put downward pressure on corn prices. The RFS policy discussions and actions have already triggered implications for growers and rural communities. Any outcome or conclusion at the White House on Monday will also have ramifications.
Thumbnail Images Courtesy NCGA and Successful Farming
Image Courtesy the Houston Chronicle